“How can the controller justify this action? People are hurting in this state. The Legislature is trying to fix a $42 billion deficit, which the controller reminds us grows larger every day. And yet the controller, who is responsible for our money, feels it is acceptable to take more unnecessary funding for his own office. I can’t even express my disgust with this behavior,” Maldonado wrote.

“Where are Chiang’s priorities? How can he say to the media that we’re out of money and he has to issue IOUs but behind closed doors buy new furniture for his office? Chiang needs a reality check. We should be putting the needs of our constituents first, not the need for nicer offices.

Chiang’s office fired back that Maldonado’s claims are “pathetic.” Had the lawmaker done his homework, the controller’s office said, he’d know that the office expansion project requiring this furniture was begun before Chiang took office, and that he already has cut its cost by more than half yet still will bring his staff’s offices into compliance with workplace safety and disability laws.

“We would urge the Senator to check his math, stop grand-standing and get back to work on negotiating a solution to the State’s $42 billion budget gap, and the lack of money to fund programs Californians depend on their legislators to provide,” Chiang’s release said.

Payments to state contractors? Aid to the aged, blind and disabled? Your state tax refund?

Not gonna happen on time — or at all, unless legislators and the governor do their jobs — State Controller John Chiang said today. Cash shortages expected in February are forcing him to delay critical payments next month.

“For months, I have warned State leaders that our cash flow will be in serious danger this Spring. Without corrective action from the Governor and Legislature, there is no way to make it through February unscathed,” he said.

Actually, the state’s General Fund cupboard has been bare for 17 months; California has been skating by, borrowing internally from special funds and from Wall Street. But now that money’s running out, too, and Chiang projects the state will be at least $346 million short in February.

The state constitution, federal law or court rulings put education, debt service and certain other payments first in line for what little is left, so Chiang intends to put a 30-day delay on everything else that’s supposed to be paid out of the General Fund. Besides the things I mentioned up top, that’ll include disbursements to State agencies that fund critical public services ranging from public safety to health and welfare.

“I take this action with great reluctance,” Chiang said. “I know it will put many California families who rightfully expect their State tax refunds in a desperate position. Individuals who already are vulnerable will be hit hard. Small businesses that don’t get paid may have to lay off more workers. Rather than helping stimulate the economy, withholding money from Californians will prolong our pain and delay our economic recovery.”

And this will get us through a few months, but won’t do anything to solve the problem, he added. “Only the Governor and the Legislature have the power to avoid this drastic and painful path. They have a narrow window of opportunity to quickly enact a sound solution to bridge the State’s cash and budget deficit, and I urge them to seize it.”

And if they don’t, he said, these payment delays might have to be extended.

State Controller John Chiang just addressed today’s special joint convention of the Legislature on California’s budget crisis, describing the problem’s parameters and leaving no doubt about what’s at stake:

“Failure is not an option here. Without coming together to address our budget problem, we will create a financial catastrophe from which it would take years to recover.

“Failing to enact a responsible, long-term solution to this financial crisis could mean liquidated damages, federal penalties, and exposing our state to expensive litigation when it can least afford it.

“You would see a chain reaction far worse than new taxes or program cuts. It would endanger local governments, schools, small businesses, nursing homes and hospitals. We would pass our financial problems on to millions of Californians by deepening and prolonging the current recession.”

While the current Receiver has successfully used his unique skills and bold, creative leadership style to investigate, confront, and break down many of the barriers that existed at the inception of the Receivership, the second phase of the Receivership demands a substantially different set of administrative skills and style of collaborative leadership. The Receivership must continue to maintain its independence as an arm of the federal courts established to take over state operations, but it also must work more closely at this stage with all stakeholders, including State officials, to ensure that the system developed and implemented by the Receivership can be transferred back to the State in a reasonable time frame. Such collaboration appears to be more important now than ever, given the current budget crisis faced by the State of California.

But by late this summer, Kelso had filed a motion asking Henderson to hold Gov. Arnold Schwarzenegger and Controller John Chiang in contempt of court for refusing to pay the bills for a plan to build seven facilities with 10,000 beds for chronically sick or mentally ill inmates by mid-2013, as well as to improve existing facilities at the state’s 33 prisons. Now, under an order Henderson issued yesterday afternoon, the state has until next Wednesday, Nov. 5, to hand over the $250 million already earmarked under AB 900, a $7.8 billion prison-expansion bill Schwarzenegger signed into law in May 2007. If the money isn’t made available to Kelso’s office by then, the parties must return to court Wednesday, Nov. 12 to argue whether Schwarzenegger and Chiang should be held in contempt of court.

It’s a genuine showdown — hardly the “collaboration” of which Henderson wrote in appointing Kelso, a Sacramento law professor with a reputation as a “fixer” capable of cleaning up government messes quickly and efficiently. Looks like Kelso’s softer touch didn’t pan out; maybe the steamrolling Sillen, with his extensive experience in big health-care system management, was what the situation really required after all.

On a related note, the following comment was attached to my article about yesterday’s hearing:

We have law abiding citizens that go without medical care…..but break the law, rape a baby, murder someone etc and you get the best care possible….what is wrong with these fatheads passing these ridiculous laws….lets protect the “good guys” for a stinkin change and pucish the lawbreakers

Sorry, no. Say what you will about so many Californians remaining uninsured or underinsured (I think it’s abhorrent), but that’s an entirely different, seperate issue from this prison health-care morass. The state was sued, and lost; it has admitted that prison health care in California is so bad that it qualifies as constitutionally impermissable cruel and unusual punishment. In many cases, the lack of adequate care — or any care at all — has turned a prison sentence into a de facto death penalty as inmates died from treatable illnesses or injuries. When we as a society lock people up, we as a society accept responsibility for providing them adequate medical care — not a gold-plated Cadillac health-care plan, just the constitutional minimum. And we’ve failed to do so.

Yet despite this admission, the state for years failed to take meaningful steps to fix the problem; only then was a receiver appointed. This current flap exists not because the state disputes the problem, but simply because the bill has finally come due after decades of neglect, and the state doesn’t want to pay it.

State Controller John Chiang has announced his cash analysis found — based on projected declines in revenues coupled with shaky elements in California’s record-setting late budget — the state needs to borrow $7 billion to meet all of its obligations through the fiscal year ending June 30.

“There is no question that today’s economic uncertainties and a tight credit market may create enormous challenges to the State to borrow at one time the entire $7 billion I have determined the State will need to meet its obligations through the end of the fiscal year. The difficulty is also compounded by the short window of time between now and the final days of October, the period in which my office has projected the State will likely run out of cash,” Chiang said.

“It is critical that Congress take swift action to adopt an economic recovery plan that can calm the fears of American consumers, stabilize the market and loosen the credit stream we will need to continue to provide quality programs and services Californians expect and deserve.”

This is why Congress must act, rather than let “the free market” correct itself without any government intervention as some have so blithely suggested in recent days. It’s easy and right to argue against bailing out billionaires and for aiding those truly in need, but the bottom-line truth is that our economy, our very society relies on credit, from the short-term loans our state government takes to pay its bills to the college loans, car loans, home loans, small-business lines of credit and so forth on which ordinary citizens rely to survive.

State Treasurer Bill Lockyer spelled it out earlier today.

“For 10 days, state and local governments have been closed out of credit markets – long-term and short-term – in spite of the fact that they represent no default risk and provide a good tax-free return to investors,” he said. “The credit market is frozen because financial institutions are afraid to commit capital amid enormous uncertainty. Congress and the President need to adopt a responsible recovery plan, and get the job done quickly.”

“Without action, we will be unable to sell voter-approved bonds for highway construction, schools, housing or water projects,” he continued. “More urgently, because the State budget was so late, we have only four short weeks to complete what otherwise would be a routine revenue anticipation note sale to meet the State’s cash flow needs. Without prompt federal action to address the economic crisis, we may have no market access to conduct that short-term borrowing transaction. That means the State’s cash reserves would be exhausted near the end of October. Payments for teachers’ salaries, nursing homes, law enforcement and every other State-funded service would stop or be significantly delayed. And California’s 5,000 cities, counties, school districts and special districts would face the same fate.”

Gov. Arnold Schwarzenegger agrees. Read the letter he sent today to California’s Congressional delegation, after the jump… Read the rest of this entry »

Gov. Arnold Schwarzenegger said today he’s going to cross his arms, stomp his foot, hold his breath and turn blue until the Legislature sends him a budget he likes.

Well, not exactly, but close:

“At this point, nothing in this building is more important than a responsible budget and to fix our broken budget system and to create an economic stimulus package, so until the Legislature passes a budget that I can sign, I will not sign any bills that reach my desk,” he said. “That means that some good bills will fail, yes, but we do not have the luxury of stretching this process any longer. The only thing that the Legislature should be focusing on is reaching a budget compromise immediately.”

For context, California’s budget hasn’t been signed by the June 15 constitutional deadline since 1986; a quick search shows me the past 10 budgets were signed on these dates:

2007: Aug. 24

2006: June 30

2005: July 11

2004: July 31

2003: Aug. 2

2002: Sept. 5

2001: July 25

2000: June 30

1999: June 29

1998: Aug. 21

So this late date isn’t new, although we are facing a much bigger deficit than usual. But state Controller John Chiang earlier today said that’s not as much of a worry as the governor would have us believe:

“On Monday, I testified to the Senate Governmental Organization Committee that June revenues provided us with more than $4.2 billion in reserves at the end of September, which is well above the $2.5 billion my office considers a prudent cash cushion. Although I will release the actual cash flow figures in my monthly report later this week, the preliminary numbers from July show that our cash position has further improved, providing added assurance that the State will have the resources to meet its payment obligations for all of September and into October.

“The Governor based his executive order to cut employees’ salaries to the federal minimum wage on a faulty premise that it would conserve the cash needed to pay our bills next month. Two consecutive months of improved revenues and decreased spending have rendered his executive order to be nothing more than a solution to a problem that does not exist in the immediate future.

“I have been working with commercial and investment bankers for the past several months to ensure the State can borrow to meet all of our payment obligations, and this news delays our need to borrow by several weeks. In light of our cash flow improvements, I respectfully urge the Governor to reconsider his executive order. To not do so would needlessly subject hundreds of thousands of hard-working public servants to financial harm and add more strain to our already fragile economy.

“Although the last two months of revenue performance are welcome news, it will not alleviate the need for California to engage in expensive and risky Wall Street borrowing later this year. The only way to avoid this borrowing is with a budget that contains sound revenue and expenditure solutions that are free from get-out-of-town gimmicks.”

A get-out-of-town gimmick is exactly what this blanket-veto threat seems to be, hot on the heels of his possibly-toothless order to cut state workers’ pay to the federal minimum wage. He’s sounding increasingly petulant as legislative leaders on both sides of the aisle fail to cave to the pressure he tries to exert. It’s a stunt I think people are likely to see worthy of one of his action films, but not of a governor.

Even his movement off his no-tax-hikes rhetoric — although at least denoting some movement — seems misguided. His proposal to raise the state sales tax by a penny on the dollar for three years would bring in about $5 billion a year, which isn’t even close to the $6.1 billion the state would have in its coffers this year had Schwarzenegger not repealed the Vehicle License Fee back in 2003. And the sales tax is more regressive than the VLF, meaning it has a more disproportionate impact on the poor: The California Budget Project says the state’s poorest 20 percent spent 8.4 percent of their pay on sales tax last year, while the richest 20 percent spent no more than 3.3 percent. And that’s to say nothing of the havoc the governor’s proposal might play with constitutionally mandated Proposition 98 education funding when the sales-tax hike sunsets after three years.

First he tried to hold state workers hostage, now he’s putting a gun to the head of the very business of government, seeking a budget deal as ransom. If I had to guess, I’d think he’s uncomfortable with giving people any more time to realize how absurd it is that California is one of only three states (Arkansas and Rhode Island are the others) requiring the Legislature’s supermajority support (two-thirds of each chamber voting yes) to pass its budget or tax increases, rather than a simple majority.

The governor clearly wants the budget done fast. The question is, does he want it done right?

Gov. Arnold Schwarzenegger did as he’d promised today and signed an executive order freezing state hiring, suspending all overtime pay, lowering the pay of more than 200,000 state employees to the federal minimum wage of $6.55 per hour, and laying off as many as 22,000 temporary state workers. Here’s how he explained it (roll your cursor over the viewer to find the “play” button):

State Senate President Pro Tem Don Perata, D-Oakland, had this to say:

“This regrettable action undermines the state’s shaky economy, inflicts hardship on 200,000 hard-working Californians who have nothing to do with the state’s budget stalemate and reduces services to everyone who visits a DMV office, expects safe highways or needs other state assistance.

“Cutting state services reduces the quality of life for all Californians; that’s why the Democrats have a plan that avoids gutting education, health care, higher education and transportation by balancing the budget with a mix of cuts and new revenue.

“The Governor’s suggestion that the Legislature did nothing on the budget prior to May 14 shows how little attention he has paid to this process. The Senate held 67 subcommittee and full budget committee hearings going through the Governor’s proposal line by line. In mid-February, we took $7 billion in bipartisan budget actions – enough to solve half of the state’s deficit.

“On May 14, the Governor proposed a revised budget with a $7 billion hole in it. The Budget Conference Committee fixed this by balancing the budget in six weeks.

“If the Governor disagrees with the conference committee’s plan for filling the hole in his budget, we’re open to his suggestions on possible alternatives.

“On Monday, the Senate will hold a hearing examining the far-reaching impact of the Governor’s executive order.

California’s Franchise Tax Board today released a new list of the state’s top 250 tax debtors, who collectively owe more than $123 million in personal or corporate income taxes — certainly not chump change, even in the face of the state’s massive budget deficit.

“Unpaid taxes that are on the books should be used to help provide all Californians with services at the state and local levels,” said State Controller and FTB Chair John Chiang. “Hopefully, this action will encourage the taxpayers that owe taxes but do not pay them to come forward and quickly help the Franchise Tax Board remove their names from the list.”

State law requires the FTB to post this list after notifying those on it that their delinquencies will become public. And don’tcha know, almost three dozen of these big-time tax debtors are from here in the Bay Area — including Oakland musician/producer Dwayne Wiggins (of Tony! Toni! Toné! fame) — owing a total of more than $15.6 million. See the local list, after the jump… Read the rest of this entry »

And now, one day after Barack Obama‘s campaign rolled out its California “truth squad,” Hillary Clinton‘s campaign has unveiled its “rapid responders” in the Feb. 5 primary states, “a national group of truth tellers who will respond to inaccurate or misleading attacks directed at Senator and President Clinton,” the news release says.

The Supreme Court of California today declined to review a Court of Appeal ruling from February that upheld the constitutionality of Proposition 71, the 2004 ballot measure approved by 58 percent of voters that launched the state’s ambitious stem-cell research program. That means this litigation — which has kept the state from issuing $3 billion in bonds to fund research, though not from approving its first $158 million in grants — is done, done and done.

Said Gov. Arnold Schwarzenegger, who last year loaned the California Institute for Regenerative Medicine $150 million from the state’s general fund to pay for research while the bonds were in legal limbo: “Today’s action by the California Supreme Court is a victory for our state because potentially life-saving science can continue without a shadow of legal doubt. This decision reaffirms voters’ will to keep California on the forefront of embryonic stem cell research. California’s leadership gives the best promise of finding a cure for deadly and debilitating diseases.”

Said Treasurer Bill Lockyer, who chairs the California Stem Cell Research and Cures Finance Committee created by Proposition 71 to manage the bond sales: “The Supreme Court’s action gives complete legal vindication to Proposition 71 and long-overdue legal finality to California voters. It’s been two-and-a-half years since voters resoundingly expressed their belief in the promise of stem cell therapies to prevent and cure diseases that ravage lives and families. After losing at the polls, the opponents tried to thwart the people’s will in the courts. Fortunately, they have failed. Now that the legal battle is over, we can at long last move forward to solidify California’s place in the vanguard of this crucial scientific and public health movement.”

Said state Controller John Chiang, who chairs the Citizens Financial Accountability Oversight Committee that watchdogs how the CIRM spends its money: “I am pleased the Supreme Court has reaffirmed the voters’ will and ended the litigation that tied up the funding for California’s investment in stem cell research. California can now issue the $3 billion in bonds to fund and accelerate stem cell research, offering hope of potential life-saving medical discoveries. Today’s ruling will also help the state move quickly to foster opportunities in medical science and new technologies.”